CORAL SPRINGS, Fla.,
Dec. 16, 2016 /PRNewswire/ -- The
following letter was delivered to New
York & Company Board and Management from Kanen Wealth
Management LLC / The Philotimo Fund:
Dear NWY Board of Directors and Executive Management,
We have been patient, passive shareholders for several years. We
currently own over 1.6 million shares. The reason we invested was
based on management's communication of cost savings initiatives,
Project Excellence (net savings of $15
million annually), and a long-term target of a high single
digit operating margin, all of the above dating back to 2013. The
sad reality, is that our stock has declined dating back to June of
2013, from $6.50 to $2.20,
representing a 66% decline. Simultaneously, during the same period,
XRT, the benchmark for retail stocks, has appreciated approximately
20% with dividends.
When we compare the actual results with management's stated
objectives under Project Excellence of $30
million in total savings and $15
million in net savings coming from a combination of COGS and
SG&A, we are left perplexed. Adjusted EBITDA has declined from
FY 2014 of $36.3 million to $28.3
million over the last 12 months (ended 10/29/2016).
Essentially, the impact of Project Excellence to the financial
results has been non-existent. Management has paid lip service to
improving operating results with nothing to show for it. NWY has
been generous to its executives at the top (annual raises) while
not being very kind to us people at the bottom (shareholders).
Project Excellence, as well as the 2013 cost savings initiatives
have been merely "token gestures", that as stated in the above
referenced financials, have not only failed in generating net cost
savings but Adjusted EBITDA has actually declined! We are calling
on the Board and management to uphold their fiduciary
responsibility and take aggressive actions with a sense of
urgency.
We are calling for the following:
1. A DETAILED REVIEW OF ALL EXPENSES
Some of which are, but not limited to, travel and entertainment,
rationalization of real estate/leases, unnecessary overtime,
optimization of matching labor hours with "peak times", cost of
internet and telephones in every location, rebidding cleaning
services, rebidding and negotiating shipping expenses,
communication with every store manager to have a goal of saving
$1,000 per month per store
($5 million cumulative annual impact
at stores alone).
We are calling on top executives, to voluntarily agree to salary
reductions that result in a cumulative annual savings of
$1.5 million, with an offsetting
increase in stock based compensation (aligning interests with
shareholders).
The goal of this expense reduction initiative will be a minimum
of $8 million annually, which is only
half of the original Project Excellence goal.
2. A $30 MILLION STOCK
BUYBACK
It is time that NWY return cash to shareholders. We estimate
that by the end of Q4, January
31st 2017, NWY will have approximately
$91 million in gross cash and
$78.5 million in net cash. Our math
is as follows: NWY will collect $22.5
million under their new Private Label Credit Card agreement
on January 10th, plus a
minimum of $15 million in Q4 free
cash flow generation (the past four years Q4 FCF has ranged between
$15-35 million). We estimate the pro
forma Enterprise Value at <$62
million. Furthermore, under the substantially improved
royalty agreement with their PLCC, as per the company's 10-Q, we
conservatively estimate in excess of $9
million in incremental royalties. When combined with
$8 million in net expense savings, we
estimate forward EBITDA to be greater than $44 million. Also worth noting, over the past 5
years NWY has run the business with net cash ranging from
$48-$61 million, and will clearly be
overcapitalized by January
31st 2017. It is worth reiterating that excess
cash be returned to shareholders in the form of a stock buyback.
For example, assuming a pro forma run rate of $44 million in EBITDA, our stock will be trading
at approximately 1.5x EV/EBITDA, we can hardly imagine a better use
of cash than our own shares!
3. NEW BOARD MEMBER – with a track record of
operational excellence and creation of shareholder value.
We thank all of the hard-working NWY employees. We wish them and
their families a blessed and safe holiday season. We look forward
to a constructive and amicable dialogue with NWY management and the
Board. Lastly, a prosperous 2017, that is inclusive of the
shareholders, not just a few at the top.
Sincerely,
David Kanen
President, Kanen Wealth Management, LLC
Philotimo Fund L.P.
631-863-3100
dkanen@kanenadvisory.com
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SOURCE Kanen Wealth Management LLC